Buying a new home is one of the largest financial decisions that you will ever make in your lifetime. It is typically a long term investment that people make. While most people are forced to finance a home, due to lack of liquid cash available, others may be debating about whether or not to pay cash or take out a mortgage. If you are lucky enough to even have this debate there are some things that you should know about both options. Here are some of the top things that you should consider when deciding whether to take out a mortgage or pay for your home in cash.
Lower Monthly Payments
If you are able to pay for a house in cash one of the biggest benefits is that you will have lower monthly payments, or no monthly payments at all. The largest portion of a mortgage tends to be the interest rates that you pay to take out the loan on your home. If you pay for a house in cash you are able to avoid these crippling interest rates and save tens of thousands of dollars on interest. This can significantly reduce your monthly payments and allow you to save money.
Decreased Investment Opportunities
One downside to paying cash or your home, rather than taking out a mortgage, is that you will have fewer liquid cash in your bank account. This decreases the amount of investment opportunities that you will be able to make. For instance, if you pay 200,000 dollars for your home in cash, you will not have this money available to invest in other areas, like stocks or bonds. This is one downside to paying cash for a home that all buyers should take into consideration.
One benefit to having a mortgage with interest is that you are able to deduct the interest that you pay on your taxes. This will help reduce the amount of money that you owe the government or help increase the money that you get back at the end of the year, depending on your individual financial situation. If you pay for your house in cash, there will be no interest and therefore, you will not be able to deduct the interest payments from your taxable income. This could leave you owing more money to the government and ultimately hurt your financial situation.
If you need to purchase a home quickly, the best way to do this is to offer an all cash offer. This will signal sellers that you are ready to buy a home and they will likely accept your offer much more quickly. When purchasing a home with cash you will not need to hire an appraiser or an inspector, which are required when taking out a mortgage. These things often slow down the process.
Lower Initial Price
Typically, when sellers are offered an all cash offer and an offer that will require a mortgage, more times than not, the sellers will take the cash offer even if it is lower. You can often beat out competitors and get a better price on your home if you are able to offer cash. This is a great option when the real estate market is hot. If it is a seller’s market, they may have multiple different offers that they need to consider. An all cash offer will separate you from the competition and allow you to get your dream home.
Improve Your Credit Score
If you have an average or lower than average credit score, a mortgage can significantly help boost your score. Even if you have the cash to pay for your home, you may want to consider getting a mortgage to help your score. A mortgage payment will improve your score if you pay your bill on time every month. Missing a payment may lower your score, but if you plan to pay your bills on time, this can be a huge benefit of having a mortgage overpaying for your home in cash.
When trying to decide which option is best for you and your family, you should consult a tax professional or financial advisor. They can look at all of your assets and your financial situation to determine what might be best for you. There are benefits to both buying your home in cash and taking out a mortgage. The current real estate market and your personal situation will guide you in making the smartest decision for you and your family.